At a time when other retailers are pausing, shrinking or consolidating, Reliance Retail is expanding. And expanding frenetically—in the quarter gone by, it averaged 5 new stores every 6 days. ET reports why, in this slow market, it is comfortable doing what others are hesitant to.

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From a quarterly basis, the brass of Reliance Retail, led by Mukesh Ambani's lieutenant Manoj Modi, now assembles for review meetings on a monthly basis. The frequency of meetings might have changed, the modesty hasn't: the presentations still make no mention of how competitors are faring.

Judging by what Reliance Retail did in the last quarter, the numbers for which it announced on January 17, and what others retailers did, it need not have. For now at least. The retail landscape in India is strewn with the remains of expansions gone awry (Future Group), or a victim of anxiety (Walmart) or put on hold (Croma, from the Tata stable). Amid all this, in the September to December quarter, Reliance Retail found a new gear.

Giving into religious sentiment, it shut down all its Delight stores, which stocked non-vegetarian food products. But, across other formats, it averaged five new stores every six days. The expansion helped it increase revenues 38 per cent, which though is below the 50 per cent target it has set for itself for the next three to four years to grow to a $6.5-8 billion (Rs 40,000-60,000 crore) entity.

The Rs 10,800 crore Reliance Retail, which is currently a subsidiary of Reliance Industries, is also inching closer to profitability. At the results announcement, Reliance Group CFO Alok Agarwal said that the company had reported its first quarterly profit at an operating level, of Rs 106 crore. It's still a long haul to turn profitable at the net level, and sustain it from quarter to quarter, but Reliance has its tail up.

Among the Indian groups in this business, Reliance was among the last to enter, about seven to eight years on, in 2006, backed with a deep war chest from its rich parent.

BS Nagesh, vice-chairman of Shoppers Stop, one of the early entrants, says that evolutionary difference is showing up. "Everybody is consolidating their learnings and getting into cautious growth," he says. Adds Kishore Biyani, CEO of Future Group: "It is a tough, mature market, and retailers will have to work out ways to find new growth opportunities." Nagesh, whose company competes with Reliance in several formats, adds that store addition is not the only metric of expansion. "I do not see an unusual aggression in Reliance Retail," he says.

"Addition of one store a day may not be significant in comparison. For instance, Reliance adding one store a day of 3,000 sq ft and a HyperCity (the hypermarket arm of Shoppers Stop) setting up a 100,000 sq ft store in a couple of months."

Harminder Sahni, founder of Wazir Advisors, a retail consultancy, points out that most retailers have had to deal with distractions—of retiring debt, of raising funding, of rules and propriety, of profitability, of online competition. "It (Reliance) is not a distracted player," he says. "It has just focused on doing retail. It has been going rock steady, it hasn't dropped formats frequently and it is focused on supply chain the way no other player has done in India."

According to a Reliance spokesperson, there's a momentum building. This, he adds, is essentially the outcome of the company, after a period of trial and error and on reaching some scale, being surer of what it wants to become and how it wants to reach there.

Freezing its formats

While Reliance has not dropped too many formats, it has shifted from big stores only to include small stores, from fresh-food only to overall foods. The format portfolio of Reliance shows that, since March 2013, the big store expansions have come in gadgets and consumer durables (Reliance Digital, up from 139 stores to 212) and in garments (Reliance Trends, 448 to 508).

Now, says the Reliance spokesperson, the stickiness is more than ever. "Today, everybody inside knows what the business is about," he says. "It is now a more anchored strategy." "It has worked out an interesting mix of diversified categories," says Kumar Rajgopalan president of Retail Association of India, a grouping of Indian retailers of which Reliance is not a member. "It is learning lessons fast and is able to create scale at a more rapid pace."

Reliance's mainstay remains its value offerings. These include Reliance Fresh (neighbourhood stores) and Reliance Market (wholesale stores). Unlike some retailers, Reliance is not vacating the neighbourhood supermarket space, especially in the top 15 cities. "At least 25-30 per cent of the grocery business in top metros comes from hypermarkets," says Abneesh Roy, associate director, Edelweiss Securities, a brokerage.

The long term in mind, Reliance is challenging this narrative. "As markets mature, customers will opt for grocery shopping in neighbourhood supermarkets, which ties in with our cluster strategy of catering to middle-class and upper middle class consumers in the top 15 cities," says Damodar Mall, chief strategy officer, value retail, Reliance.

"Supermarkets in a catchment area ups the customer service quotient in the neighbourhood and everybody upgrades accordingly." Reliance Market, its wholesale stores catering to smaller retailers and business establishments, is emerging as a useful hedge to its neighbourhood stores. It opened its first wholesale store in Ahmedabad, in September 2011. Now, it has 15 such stores, including six in the last three months: in Anand, Bangalore, Chennai, Faridabad, Guntur and Mumbai. "These are cash guzzlers and only the Reliance Group has the ability to stay put," says Roy of Edelweiss.

Bijou Kurien, former chief executive and president (lifestyle), Reliance Retail, feels the challenge for the company will be to create new markets beyond the top 80-90 cities. "All the good markets and stores have been covered in the first phase," he says. "In smaller potential markets or smaller towns, it is not easy to change deeprooted habits of consumers easily."

According to Kurien, one challenge before Reliance is to create a pipeline of differentiated offerings, which it is trying to do. At Reliance Digital, for example, Reliance is trying to take responsibility of installation and after-sales service from manufacturers.

So, it is training about thousands of electricians to handle televisions, refrigerators, mobiles and washing machines, among other things. "We have committed huge investments there," says the Reliance spokesperson. "Will it get us immediate returns? It will not, but it will secure our future customer."

Personalities to processes

As Reliance gets surer of more pieces in the business, the kind of people it wants is also changing: from those who will build the business to those who will run the business. In the kind of people it has sought, Reliance has gone through three phases.

The first phase, between 2006 and 2009, comprised retail veterans who had proven themselves in building businesses: late Raghu Pillai came from Pantaloons, Bijou Kurien from Titan Industries, Rajeev Karwal from Electrolux, Sanjeev Asthana from Cargill, Gunendar Kapur from Unilever Nigeria. The second phase, from 2009, revolved around expats with rich operating experience in global retailers.

Leading them was Gwyn Sundhagul, who came from Tesco Thailand. In 2011, Sundhagul was replaced by two senior officials from Walmart China: Rob Cissell and Shawn Gray. The third phase is currently underway. In this, the focus is on neither high-profile stars nor expats. It's on people who build processes. "We don't want stars," says the Reliance spokesperson. "We want experts who can build sound systems and processes that don't hinge on one person."

The very nature of the retail business, says Sahni, does not allow for a fancy rank and file. "It is all about trading in somebody's brands, not about creating networks and building brands," he adds. "After power, utilities and ACs, not much can be done on an 8 per cent margin. I, therefore, discourage MBAs with high expectations from retail."

The new mindset is empowering officials at the middle and lower levels, and creating interesting possibilities for them. "Shop-floor attendants are today store managers or cluster managers," says the Reliance spokesperson. "The focus is on decentralising the operating side and consolidating at the category level." One part of Reliance Retail that draws even the competition's envy is its supply chain. It's the most expansive among retailers in India, commanding clout, for example, while sourcing fruits and vegetables directly from farmers.

Industry officials say any retailer, Indian or foreign, will need at least three years to build something of this scale and intricacy in diary products and fresh foods. "We have invested in systems and processes ahead of its time," claims the Reliance spokesperson. "When the market is ready, we will be is prepared to do that well." At the moment, it is gaining at the expense of others. "The competitive intensity is lessening," says Roy of Edelweiss.

"Other players are cutting down expansion plans." Mark Ashman, CEO of HyperCity, which is taking a gradual expansion path, feels different models work for different groups. "Some try to achieve it through scale and therefore push expansions," he says. "We have been focused on refining the model in our big-box retail strategy by driving higher-margin categories. We may have fewer stores, but those would be more profitable."

At Reliance, the diktat from the group at the top that does the monthly review is: all formats have to be profitable by mid-2014. Parent Reliance Industries has so far invested about Rs 6,000 crore in the retail business. After a period of hesitancy and doubt, followed by a period of rebuilding and consolidation, the retail business appears to be beginning to look more like how Reliance businesses have been known to look.